Why You Should Work With an In-Country Auditor

As a result of COVID-19, auditors have been forced to execute nearly all engagements remotely. Yet group auditors have performed foreign component audit procedures remotely, even from other countries, for quite some time. Some parent companies assume a remote audit brings a more seamless process and reduces costs. However, if you operate globally, there are pitfalls and advantages to working with an in-country firm.

Opportunity costs — choose an auditor who knows you

An auditor who knows your business and understands your operational environment can help you identify opportunities. Your auditors should have technical knowledge of the respective laws and regulations of both the country of the parent company and the country in which the entity that is the subject of the component audit is located.

In the United States, tax planning and tax compliance can be quite complex. The sheer number of state and local tax rules and the frequency with which those rules can change are the prime example of what makes tax planning and compliance so complex.

Also contributing to that complexity are the numerous tax-related opportunities that exist. Research and development tax credits, tax planning and structuring opportunities, cost segregation opportunities, and work opportunity tax credits are examples of the opportunities that may be available. Missed opportunities can mean lost five- or six-figure tax refunds and not realizing reduced future tax burdens, can limit the enterprise value of your business upon a transition event, or can result in increased cost to obtain capital.

The ability to observe the business in practice and to talk with the right people — including local stakeholders — is best accomplished by using a trusted “local” resource. In addition, it may be more difficult for a remote auditor to provide feedback on the control environment of your finance department and related business and information systems and processes.

Financial reporting and audit costs — missed risks and issues

Auditors must communicate with employees outside of your management and accounting team, and there are significant benefits when they can corroborate information with others in your organization. Often, the operational insights gained provide perspective outside of what is found in a spreadsheet or solely from accounting and finance professionals. It can also be easier to truly engage and relate with someone in person rather than over email, phone, or video.

Auditors can help you identify potential fraud or uncover previously concealed risks. But valuable information can be missed if auditors are not present — and not only during the audit, but at other times of the year. From an audit perspective, the risk of a material oversight and the related exposure to your company — which includes reputational risk — can increase exponentially when an audit is performed remotely from abroad.

For example, a remote auditor may miss inventory overstock and obsolescence issues they could observe if they walked the floor. Engaging a firm solely to address a year-end inventory observation is helpful, but without full knowledge of the company and worldwide group, there could be issues when addressing this risk.

Tax-related matters can also be missed, which include federal, state, and local tax compliance. A foreign auditor may not be qualified to sufficiently review and sign off on tax-related accounts, which could result in overreliance on a tax advisor who may not identify or handle matters properly.

Relationship turnover costs — client service and relationship risks

To deliver more than an audit report and tax services, your auditor should push beyond the core compliance work to address key business concerns and pain points. A true advisor should identify both opportunities and risk. Such trusted, longstanding relationships are built through resourceful service delivery, meaningful interactions, and an overall quality experience.

Don’t work with an auditor who treats you as a commodity. You both lose when this happens — your company must invest additional time and energy on RFPs, introductory meetings, restarting the learning curve, and building the relationship. This is unnecessary and avoidable business disruption.

Audit fee and related costs — engagement execution challenges

The most efficient audits follow a coordinated plan that is executed and completed at agreed-upon times (before and after year-end). Despite the best intentions, working remotely can make it difficult. Time zone differences make it challenging to schedule meetings during business hours, which increases the risk of missing critical reporting deadlines. Inefficiencies increase with each delay and, in turn, make it more challenging to get “back on track.”

The inefficiencies and corresponding amounts of time invested tend to increase exponentially when you face a difficult audit matter, resulting in increased costs and fees for you. When you waste precious time and resources, the missed opportunity costs — and the unnecessary stress — are difficult to quantify, but very real.

Takeaway —thrive with the right relationship

Working with an auditor from abroad may seem to yield positive results. However, don’t overlook the potential costs. When you engage a reputable, in-country professional services firm that can deliver services with a personal touch and a wealth of resources, the benefits are tremendous.

How we can help

CLA is an independent member of Nexia International, a top 10 worldwide network of accounting firms. Wherever you are in the world, a member firm can understand your needs and provide tailored services. When you work with a Nexia firm, you get independent audit services based on the regulatory requirements of all relevant jurisdictions.

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